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Massive Borrowing Puts Nigeria’s Future at Risk

August 17, 2022 by Admin Leave a Comment

President Muhammadu Buhari, Vice president Yemi Osinbajo at the All Progressives Congress (APC) NEC meeting in Abuja…

Written by Ebenezer Obadar

The country’s bloated debt portfolio is the outcome of decades-long economic mismanagement.

Among the many dangers threatening the very foundation of the Nigerian state is the government’s increasing reliance on internal and external borrowing to finance its operations. In recent weeks, various international organizations, private entities, senior government officials, and former government functionaries have decried the Buhari administration’s appetite for borrowing, and warned about the risk to the Nigerian state of allowing the situation to get out of hand. These include the International Monetary Fund (IMF), which projected that “the Nigerian government may spend nearly 100 percent of its revenue on debt servicing by 2026;” the World Bank, which warned that the country’s debt, while seemingly sustainable, is “vulnerable and costly;” and the Nigerian Economic Summit Group (NESG), a body of private sector leaders, which warned against what it saw as the prospect of creating “a debt burden for future governments.”

Last week, former Deputy Governor of the Central Bank of Nigeria (CBN), Kingsley Moghalu, joined the chorus, indicting the leadership of the country’s apex bank for bowing to political pressure and “printing money for the government through illegal Ways and Means lending.” Incidentally, this is not the first time that the Nigerian government has been accused of printing money illegally. Last year, Governor of Edo State Godwin Obaseki claimed that the Federal Government printed “N60 billion as part of allocation to states for March 2021,” an allegation promptly rejected by the authorities.

The gravity of Nigeria’s debt situation is captured by the following statistics. Between 1999 and 2021, local and external federal government borrowings jumped from N3.55 trillion to N26.91 trillion, an increase of 658 percent. While much of that increase has taken place under the Buhari administration (for instance, it has overseen a 291.37 percent rise in foreign debt alone), it is by no means the only culprit. While external debt declined from $28.04 to $2.11 during the Olusegun Obasanjo era (1999- 2007), it rose under the successive Musa Yar’Adua and Goodluck Jonathan administrations. Under the latter, “the federal government component of the total public debt increased from N6.17 trillion in 2011 to N9.8 trillion in 2015,” a 58.8 percent jump. With a total public debt stock of N41.6 trillion, Nigeria’s debt to GDP ratio currently stands at 23.27 percent.

Last month, Minister of Finance, Budget and National Planning, Zainab Ahmed, revealed that, at N1.94 trillion, the cost of debt servicing had surpassed the government’s retained revenue of N1.63 trillion, leaving it N300 billion in the hole.  

It goes without saying that the Nigerian economy has taken a hit from the combined fallout of the COVID-19 epidemic and the Russian invasion of Ukraine. A study by the International Food Policy Research Institute (IFPRI) estimates that the pandemic accounted for “a 14-percentage point temporary increase in the poverty headcount rate for Nigeria, implying that 27 million additional people fell below the poverty line during lockdown.” For its part, the Ukraine conflict has triggered a spike in the cost of food, diesel, and transportation, especially air travel. In May, the Manufacturers Association of Nigeria (MAN) warned that the country faced a “looming crisis.”

While COVID and the Ukraine conflict have buffeted the Nigerian economy, most of its woes stems from decades of systematic profligacy, mismanagement, and corruption. For example, although Russia’s invasion of Ukraine drove up the price of oil in the global market, Nigeria could not take advantage because the country currently refines almost none of its own crude oil. In 2020, “the cost of importing refined petroleum products exceeded petroleum exports by $43.56 billion.” Every day, Nigeria loses four hundred thousand barrels of oil to theft, a situation described last week by Minister of State for Petroleum Resources Timipre Sylva as a “national emergency.” Between January and September 2021 alone, the country lost a little under N900 billion to pipeline vandalism. Approximately $15 billion is lost annually to offshore tax evasion. According to the Washington, D.C.-based Global Financial Integrity, Nigeria “ranks as one of the ten largest countries for illicit financial flows in the world,” hemorrhaging an estimated $15.7 billion annually.

Corruption remains endemic. In the four years leading up to May 2021, the Nigerian government recovered more than $700 million in stolen funds lodged in foreign accounts in the United States, the United Kingdom, Switzerland, and Ireland. For comparison, the Abuja, Nigeria-based YIAGA Africa calculates that the country has lost $582 billion dollars to corruption since independence in 1960. While the Buhari administration makes all the right noises about battling corruption, inconsistences like the pardon of politicians convicted for stealing public funds undermine its case. In April, Joshua Dariye and Jolly Nyame, former governors of Plateau and Taraba states respectively were pardoned along with 157 other convicts.

Although the blame for corruption in Nigeria cannot be pinned on a single administration-such, indeed, is its depth, ubiquity and complexity-it is significant that Buhari gained the confidence of the electorate partly because of his vow to tackle the problem head on. Among other things, Buhari promised to create “special courts for accelerated hearing of corruption, drug trafficking, terrorism and ancillary cases.” Not only have no such courts been established, the president practically admitted failure two years ago with his confession that “there is corruption almost everywhere; at many levels of government, and nearly every stratum of our society.”

In the meantime, efforts to reduce dependency on borrowing have led to a renewed drive to increase efficiency and revenue intake. The recent reinvention of the Nigerian National Petroleum Corporation (NNPC) as a “private venture” (albeit its shares and assets are still held by the finance and petroleum ministries) is one such move. So is the proposed five percent tax on mobile services, including voice calls, mobile data and text messages. The proposal by state governors to “offer federal civil servants who are older than fifty years a one-off retirement package to exit the service” has been condemned by the Nigeria Labour Congress (NLC) as “unrealistic, insensitive, and hypocritical.”   

While some of the government’s proposals seem to signal a fresh determination to boost revenue from non-oil sources, others smell of sheer desperation and betray a lack of a clear economic vision. In any case, the scale of Nigeria’s largely self-inflicted fiscal problems is such that these proposals are unlikely to have any significant effect. Besides, there is no guarantee that any fresh revenue intake by the state will not meet the fate of its predecessors: wasted or stolen outright. For the foreseeable future, Nigeria seems trapped in a recurrent loop of profligate spending, unfettered borrowing, and cascading revenue.

The least one can say about the administration that will succeed Buhari in May 2023 is that it has its work cut out for it.  

This publication is part of the Diamonstein-Spielvogel Project on the Future of Democracy.

Filed Under: Articles, Strategic Research & Analysis

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